Microsoft Surface's Inevitable Shrinking

At the Goldman Sachs Technology and Internet Conference this week, Microsoft (NASDAQ: MSFT) CFO Peter Klein hinted at what other types of hardware the software giant may have in its pipeline. Will Microsoft shrink its Surface tablet?

That's what he saidKlein said that Microsoft is ready to expand the types of mobile device form factors that Windows can power, moving to both smaller and larger devices depending on consumer preference. "We're set up for that," Klein added, "The notion of flexibility and scalability of the operating system is intrinsic to our strategy."

He pointed to the fact that both Windows 8 and Windows Phone 8 share the same code foundation, which allows for applications to easily scale up and down depending on need. We're talking about devices with displays ranging in size from 4 inches to 27 inches, and "everything in between."

Reading between the linesOf course, Klein is specifically referring to Windows devices made by anyone. That certainly includes its wide army of hardware OEMs, but also strongly hints that the company is planning to pursue a smaller Surface tablet.

Steve Ballmer has made it clear that Microsoft is coming after nearly all of Apple's (NASDAQ: AAPL) market segments. Recall Ballmer's words last summer when speaking with CRN:

We are trying to make absolutely clear we are not going to leave any space uncovered to Apple. We are not. No space uncovered that is Apple's. We have our advantages in productivity. We have our advantages in terms of enterprise management, manageability. We have got our advantages in terms of when you plug into server infrastructure in the enterprise. But we are not going to let any piece of this [go uncontested to Apple]. Not the consumer cloud. Not hardware-software innovation. We are not leaving any of that to Apple by itself. Not going to happen. Not on our watch. We do feel empowered to innovate everywhere and bring our partners with us. We are just not going to leave any -- what's the expression people like to use -- we're not going to leave any stone unturned, so to speak, as we pursue that.

With Apple just recently entering the small-sized tablet market with the iPad Mini, Microsoft has to follow suit if Ballmer wants to keep his word. No space uncovered, right? On top of that, Ballmer has made it clear that Microsoft's future is becoming a "devices-and-services company." Devices. Plural.

It's also plain to see that consumer preference in the tablet market is heading toward smaller form factors. The iPad Mini is a hit even with its lackluster display. Apple couldn't make enough of the device last quarter due to booming demand.

Amazon.com (NASDAQ: AMZN) continues to enjoy success with its Kindle Fire, and the larger one doesn't seem to be selling very well. That means that those 6 million units that it shipped were probably mostly the 7-inch flavor. Google's Nexus 7 is also a hit, and the search giant probably sold around 3 million of those during the fourth quarter.

Steve Jobs was wrong when he said that a 10-inch display is the perfect size for a consumer tablet. The 7-inch to 8-inch size really is the sweet spot for this type of mobile device. Consumers are clearly voting with their wallets and it's so obvious that not even Microsoft can miss this one.

Surface tensionThere was also speculation late last year that Microsoft was already about to expand the Surface family, shortly after the launch of Surface Pro, which was just this month. That could include second-generation models to both Surface RT and Surface Pro, but also potentially taking the Surface brand a step farther with a Surface Book laptop. A Surface Mini doesn't sound like such a stretch.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, Goldman Sachs, and Google. The Motley Fool owns shares of Amazon.com, Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Now that Microsoft is becoming a Hardware company IN COMPETITION ALSO WITH ITS MAIN CUSTOMERS (HP, Dell, Toshiba, Sony, Acer, Lennovo...etc.) -- Why should those companies continue to allow Microsoft to "suck the profit out of them" by charging them for the Windows Software installed on HP...etc. computers? Why don't those companies all switch to using free software from other sources?

I would like to just say that the iPad Mini "lackluster" display is actually quite beautiful. It does not have the Retina display as does it's larger brother .... but because it's size is smaller the display used is beautiful and NOT LACKLUSTER.

That is not to say a Retina would not be a bit sharper and I am sure Apple will add that when production ramps up and the battery gets improved for a display more power hungry. But in the mean time the existing display is nice enough.

Because using free software entails using Linux, that's not what they will use for a desktop/laptop OS, it's not mainstream.

They made their own bed with Microsoft, so they either have to lay in it, or many will opt for going with Apple. There are already signs of this. Many companies are either allowing employees to bring their own while many have opted to allow Macs to be purchased.

Linux isn't a viable alternative because the mainstream apps just aren't there, plus it's not designed for the average user.

Watch AAPL reach 300. Software issues on existing products, and nothing new to compete with Samsung and Nokia. No wonder people move their 401k into non Apple funds, and institutional investors run away; it's rotten.